Germany is facing its worst recession in recent years, with investment and output under pressure to shrink, and the outlook for the domestic construction industry in 2024 is bleak. Data from
the German National Bureau of Statistics show that Germany's adjusted GDP fell by 0.3% in 2023 in the face of multiple crises. Destatis noted that despite recent price declines, prices remain high at all stages of economic development, which has dampened economic growth. Adverse financing conditions due to rising interest rates and weak domestic and foreign demand have also taken their toll. Consumer spending fell 0.8% for the year because of inflation. Meanwhile, government consumption fell by 1.7%, mainly due to the end of state-funded COVID-19 measures. The decline in GDP marked the first contraction since 2020, which was affected by COVID-19. In addition, analysts warned that Germany could see stagnant growth in 2024 at best, raising the risk of a second consecutive year of negative output.
Construction spending and output fall
After more than a decade of steady growth, demand in Europe's biggest construction market is struggling under pressure. German construction output grew by 0.4% in the third quarter of 2023, after falling by 0.9% in the previous quarter, according to DIW Berlin. However, the agency's forecast points out that the economic contraction in the fourth quarter of 2023 will continue into the second quarter of 2024. Growth is expected to resume in the second half of 2024, supported by planned and approved construction projects. However, the Institute noted that the number of construction project declarations has been declining sharply for some time. Overall, construction is expected to shrink by 3.5% to € 546bn in 2024, before picking up slightly in 2025, with growth of 0.5%.
Spending is also falling, with the German Construction Industry Association predicting that construction investment will fall by 5.5% in 2023 and 3.5% in 2024. New housing, which accounts for 33% of housing investment, is expected to fall by 12% in 2023 and 2024 due to lower public funding, higher interest rates, sharply rising construction costs and difficulties faced by some developers. In fact, after a years-long boom in German homebuilding driven by low interest rates and strong demand, the pace of new orders has slowed significantly and existing orders are cancelled more frequently. On the other hand, the renovation (less intensive with cement), public works and non-residential sectors performed better than expected. Weak
cement demand in the first half of 2023 fell by 18.4% year-on-year, and cement consumption in 2023 fell by about 8% year-on-year to 25.82 million tons, according to the German Cement Industry Association. Analysts at CIC Market Solutions said cement prices would contract by 20% in 2023 and then fall by 5% by 2024.
Despite the current low demand, cement prices in Germany are still rising due to the continued rise in carbon and energy prices. Following two price increases in 2022 (€ 9-12/t in April and €15/t in June), the sales price increase in 2023 is expected to be followed by a further increase in 2024. Is
rationalization possible?
Given the current challenges facing the German cement industry, from rising input costs to weak domestic demand, the industry is likely to be rationalized due to internal competition and ongoing overcapacity. There are 21 companies in the German cement industry, including medium-sized (often family-owned) companies as well as large international groups. According to VDZ, they operate a total of 53 cement plants, of which 33 are integrated. In 2022, the industry produced 32.9 million tons of cement, with a capacity utilization rate of 70%. Headquartered in Germany
, Heidelberg Materials is the country's leading domestic producer and is reportedly looking to take individual plants completely off the grid and shift production to time slots with lower electricity prices due to the high cost of gas and electricity. In addition, as Heidelberg Materials continues to divest as part of its "Optimization and Profit Improvement Program", the company's native German operations are likely to be part of the future adjustment process.
